Fed's Dudley confident U.S. inflation should rebound with wages

William
C. Dudley, President and Chief Executive Officer of the Federal
Reserve Bank of New York speaks during a panel discussion at The
Bank of England in LondonThomson
Reuters

By Jonathan Spicer

PLATTSBURG, NY (Reuters) - U.S. inflation is a bit low but should
rebound alongside wages as the labor market continues to improve,
an influential Federal Reserve official said on Monday,
reinforcing the message that a recent patch of weak data is
unlikely to derail plans to keep raising interest rates.

The comments by New York Fed President William Dudley, a close
ally of Fed Chair Janet Yellen, were among the first after the
U.S. central bank hiked rates last week in the face of a series
of soft inflation readings.

"This is actually a pretty good place to be" with unemployment at
4.3 percent and inflation at about 1.5 percent, Dudley told the
North Country Chamber of Commerce in Plattsburg, New York.

"We are pretty close to full employment," he said. "Inflation is
a little lower than what we would like, but we think that if the
labor market continues to tighten, wages will gradually pick up
and with that, inflation will gradually get back to 2 percent."

Price readings have edged lower over the past few months, raising
questions about the Fed's general plan to boost rates one more
time before the year-end, and another three times next year. Last
week's hike was the central bank's third in six months.

Asked about a so-called flattening of yields in the bond market,
which suggest investors are skeptical that this Fed
policy-tightening cycle will last much longer, Dudley said
pausing policy now could raise the risk of inflation surging and
hurting the economy.

He said he did not read the market move as a negative signal for
the U.S. economy, but rather one that reflects low overseas
inflation and borrowing costs.

"I am very confident" that economic expansion "has quite a long
ways to go," Dudley said, adding he expected wage growth to rise
to about 3 percent over the next year or two.

(Editing by Bernadette Baum)

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